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Source: www.uscc.gov
Start | US-China Trade and Economic Relationship | China's Security-Related Activities | China's Energy and Environmental Policies and Activities | China In Asia | China's Media and Information Controls Conclusions | Additional Views | Appendices
We are writing to raise a caution flag about the integrity of the United States defense supply chain and the degree to which it may be dependent on components from China. After three years of hearing about problems related to the potential dependence of the U.S. military supply chain on components or supplies from the People’s Republic of China, we think that the House and Senate Armed Services Committees should conduct classified hearings to determine the extent to which the U.S. armed forces may depend on China to be able to function.
We believe this is important because in the past two years, the U.S.-China Economic and Security Review Commission contracted for research to determine the level of dependence of the U.S. defense supply chain on China. In each case, the contractors had difficulty getting the data from U.S. Department of Defense (DoD) agencies on what components of several new weapon systems came from China. One study is still ongoing. The military departments and services, however, often are not able to respond in full, citing the need to classify their reports.
In 2004, at a hearing in Akron, Ohio, the sole American manufacturer of sonobuoys (submarine detection devices) for the United States Navy testified that unfair trading practices are allowing Chinese manufacturers of printed circuit boards used in sonobuoys to sell their product in the U.S. at a sharply discounted price. The American sonobuoy manufacturer testified that his company would lose business to Chinese competitors, and as a result, Chinese circuit boards would be installed in the sonobuoys used to detect Chinese submarines. This struck Commissioners as ironic, since the U.S. Navy had a particularly difficult time locating Chinese submarines in the Western Pacific. That situation has been addressed, and alternate suppliers are now available.
However, in hearings in 2005, the Commissioners were told that the Department of Defense ‘‘trusted’’ and ‘‘assured’’ supply of highperformance microchips is in jeopardy because of the restructuring of the U.S. commercial integrated circuit industry, some of which has moved operations to China.
In Dearborn, Michigan, in 2006, witnesses from the U.S. Army told Commissioners that the Army’s capacity at the Tank and Automotive Command to surge in the event of a wider war was limited. Further, according to one witness, the Army is dependent for some materials and parts on suppliers in China.
In 2007, one witness told the Commissioners that in the near future, DoD is very likely to have to depend on supplies from China for the propellant used in some missiles, such as the Hellfire AGM–114 anti-armor missile that can be launched from helicopters. Again, we find this ironic, since in 2005, Taiwan agreed to buy 600 Hellfire missiles from the United States to defend itself in the event that the People’s Republic of China carries out its threat to attack Taiwan if the Communist leadership in Beijing thinks Taiwan’s democracy is moving too far toward ‘‘independence.’’
The Commission will continue to pursue information about the level of dependence of the U.S. defense supply chain on China in its contracted research and will report the results to Congress.
We believe, however, that the relevant committees of Congress will get more accurate and timely information if they exercise their oversight authority and conduct classified hearings on the topic.
I have supported this year’s Report because it demonstrates the Commission’s continued lurch toward objectivity and thus credibility. In contrast to previous years, this Report avoids many of the odder flights of rhetoric that have amused readers in the past. This year we are more boring, but the result is a more balanced and more thoughtful Report.
As in previous years, the Commission has continued its impressive record of thorough, balanced, hearings with expert witnesses from the government and private sector. That body of work provides an in-depth set of studies on topics important to the bilateral relationship, and the hearing records contain significant amounts of data and other information of use to scholars and policy makers. Some of that is highlighted in this Report, but researchers would be advised to consult the full hearing records.
Looking at the specific chapters, this year the Commission has again attempted to examine the strength of the defense industrial base and again has run into difficulty obtaining useful data, at least as of the writing of this report. While there appears to be concern about the defense industrial base at high levels in the Defense Department, the Pentagon clearly does not have adequate procedures in place to track the sources of components and subcomponents of its systems and thus cannot come to any useful conclusions about the viability of the defense industrial base. The Commission has made a constructive recommendation on this point but has probably gone too far in suggesting record keeping to the ‘‘bottom tier,’’ which would impose an entirely unrealistic burden on defense contractors attempting to survive in the global marketplace. There is also more than a hint that the proper policy goal is autarky, which is not only impossible, but unwise if our defense establishment is to take advantage of the latest technology and innovation globally.
One area where the Commission’s recommendations are particularly thoughtful is with respect to energy and environment, where it has opted for a cooperative approach rather than the pressure tactics proposed in other chapters. Hopefully, this bit of wisdom will spread to other issue areas in future Reports.
Unfortunately, the Commission continues to reflect confusion on the issue of exchange rates. The Congress is likewise confused, but instead of providing thoughtful analysis to Members, the Commission has merely thrown existing Congressional proposals back at them without adequate analysis as to whether or not they will work. Attractive though penalties always seem to the Commission, antidumping and countervailing duties are microeconomic remedies ill-suited to a macroeconomic problem. Including the amount of currency subsidy in their calculation may provide some measure of relief for a few companies or an entire sector, but achieving an economy-wide impact would require filing thousands of cases—a development that would primarily benefit trade lawyers.
Further, some of the proposals—changing the requirements for Treasury’s semi-annual currency report and the antidumping standing rules—are little more than cranky efforts to change the rules of the game because we’re not winning often enough. Even the recommendation for a multilateral approach—a WTO complaint-is the right idea, but misplaced. It is the IMF that has failed in its responsibility to deal with exchange rate misalignments, deliberate or not, and it is there that U.S. efforts should be directed.
There are also other problematic recommendations, particularly those that would require expanded corporate reporting of activities in China and would use that proprietary data for policy purposes. They betray a far too simplistic view of the ease of identifying and quantifying subsidies and research and development costs and would, I believe, impose a significant burden on companies without an offsetting benefit.
Likewise, on the vexing issue of information technology (IT) companies attempting to operate in China, the Commission has once again taken the easy way out by essentially endorsing Congressional efforts to mandate limits on their cooperation with Chinese authorities. The recommendation is not as bad as it could be, but it still leaves unexamined the question of whether the Chinese people’s access to information and U.S. national security are better served by a growing U.S. IT presence there, however limited; or whether they and we are better off with greater Chinese reliance on indigenous hardware and software. Here, as elsewhere, the morally and politically correct position, which the Commission has always been quick to take, may not be the one most in our or the Chinese people’s interests.
This emphasis on moral and political correctness also can be seen in the Commission’s increasing focus on human rights and religious freedom. These are important concerns, and I applaud individual Commissioners’ interest in them, but I hope that as the Commission’s work evolves, it does not lose its focus on its fundamental mandate of national security, a mandate that distinguishes us from the Congressional-Executive Commission on China.
Last year I warned that China becoming a responsible stakeholder does not simply mean that they have to agree with us on all important issues, and I faulted last year’s Report for falling into that trap. This year’s Report is better on that point and reflects some recognition that we do best with China when we can explain to its leaders why a particular action is good for them rather than why it is good for us. The Report’s recommendations, however, continue to reflect a lack of patience and perspective. The problems the Report identifies are real and serious, and some of them have gotten worse in the past year rather than better, but progress on them will inevitably be as Lenin suggested—a matter of two steps forward and one step backward, and sometimes the reverse. The Commission could perform a real service to Congress by making that point from time to time. Counseling patience does not mean surrendering the goal of a better and more balanced bilateral relationship; it means we have a more sophisticated understanding of how to reach it.
I consider this to be an interim Report—a periodic progress Report. The final Report, the Commission’s only statute-required deliverable item, is due seven months from now—‘‘by June 1’’ of 2008. I find this interim Report acceptable as such and have signed it. The Commission staff has done great work. However, as the GAO points out in its recent Report to Congress, the Commission has never submitted a Report on time.
The Commission relies heavily on a ‘‘consensus’’ approach in preparing its advisory Report. As we know, the term has various definitions, ranging from absolute unanimity to mere majority. Commissioner silence is at times treated as ‘‘consensus’’ concurrence, and some complex issues are disposed superficially and hurriedly. While the quorum for this twelve-member temporary entity is seven, the final text for this entire Report was ‘‘frozen’’ to be voted on without changes, and edited in four hours by just four Commissioners present at the end. Sparse attendance is typical. There is heavy reliance on testimony of panelists. The Commission for the most part plays a passive role, adds little value, and delivers as advice to Congress selective excerpts of testimony. For example, while one key panel consisted of two coal-state governors, discussing the need of national legislation to aid clean-coal technologies, not even one of the energy chapter’s 270 footnotes is attributed to their testimony. The key issue is—is the Commission forcing its ‘‘consensus’’ opinion on Congress, thus taking from Senators and Representatives the opportunity to evaluate differing views of important issues, and to disagree or agree as they see fit?
The Commission is subject to the Federal Advisory Committee Act (FACA). While transparency and openness are desirable, it is not logical or desirable to disclose the results of the Commission’s work (even if unclassified) to foreigners, in this case to Russians, even before the U.S. Congress sees it. The Commission is required by statute to ‘‘investigate’’ exclusively specific, limited aspects of the U.S.-PRC bilateral relationship. To investigate means to conduct research, and FACA is flexible with respect to research. However, the Commission takes a passive approach and chooses to edit staff work rather than to meaningfully conduct research investigations, as mandated by statute. If the Commissioners did their job as required by law, their advisory report would first go to the U.S. Congress—before it arrives at the Russian embassy.
The Report’s recommendations are generally weak. Typically they read something like this: the Commission recommends that Congress urge the Administration to conduct dialogue, or continue to monitor events, etc. Instead the Commission should recommend that U.S. Congress consider specific legislation and/or that Congress urge the Administration to take clearly defined steps. As Governors Schweitzer and Manchin testified to the Commission, the U.S. must lead by example and start soon and aggressively to have any credibility. For example, in the energy area the Commission could recommend that Congress pass: (a) legislation that establishes a national standard for mineral rights (this is a prerequisite of the fundamental mandated requirement of influencing PRC energy policy—lead by example); (b) a carbon sequestration law (carbon sequestration is a strong candidate area for mandated joint U.S-PRC R&D and U.S. technological assistance to the PRC); and (c) legislation that establishes a carbon policy and encourages investment in technologies such as coal-to-liquids, energy-efficient transformers, advanced solid state technology, etc.—all areas in which the U.S. can engage in joint R&D with the PRC and possibly provide technological assistance, as mandated by Congress. We cannot eliminate coal from the energy picture. While coal is king in the PRC, half of the U.S. electric power sector is fueled by coal, U.S. leads the world in possession of proven coal reserves (27%), and global oil reserves have already peaked—in order to be used, coal must be burned cleanly. The technology exists. As the West Virginia and Montana Governors testified, U.S. Congress should pass laws to make clean coal economically feasible. The Commission should advise Congress accordingly. Status quo is not an option.
Has the Congressionally established U.S.-China Economic and Security Review Commission become a mere ‘‘clearing house’’—do the Commissioners no longer add value? Does the Commission merely repackage views of selected bureaucrats and academicians and pass them on to U.S. Congress as advice?
The Commission’s statutorily required advisory report is due seven months from now, by June 1, 2008. The current submission is a voluntary interim progress report, which could be incorporated in whole or in part, directly or by reference, in the final May 2008 Report. Nobody should be above the law—immigrant day laborers, telephone companies, or legislative Commissions. Amnesty to illegal border crossers, retroactive exemption from liability for privacy violation, or disregard of statutory deadlines—all are unacceptable, especially so when it comes to a Commission appointed by the lawmaking bodies of the land. As the result of concerns, including those set forth above, the U.S. Senate passed legislation requiring increased oversight of the Commission and term limitations for Commissioners. Given that the GAO report found potential for fraud, waste, and abuse, the Senate was right on the mark.
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